Press Release CAPITAL POWER SYSTEMS LIMITED March 29, 2023 Rating Assigned and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	4.50	ACUITE BBB | Stable | Assigned	-
Bank Loan Ratings	34.50	ACUITE BBB | Stable | Reaffirmed	-
Bank Loan Ratings	31.50	-	ACUITE A2 | Assigned
Bank Loan Ratings	60.50	-	ACUITE A2 | Reaffirmed
Total Outstanding Quantum (Rs. Cr)	131.00	-	-

Rating Rationale

Acuité has reaffirmed its long term rating of ‘ACUITÉ BBB’ (read as ACUITE triple B) on Rs.34.50 Crore, and its short term rating of 'ACUITE A2' (read as  ACUITE A two) on Rs.60.50 Cr. bank facilities, and has also assigned its long term rating of ‘ACUITÉ BBB’ (read as ACUITE triple B) on Rs. 4.50 Crore and short term rating of 'ACUITE A2' (read as ACUITE A two) on Rs. 31.50 Cr. bank facilities of Capital Power Systems Limited (CPSL). The outlook is ‘Stable’. Rationale for rating assigned and reaffirmed The rating assigned and reaffirmation reflects improving operations, reputed clientele, healthy order book and long operational track record of the company. The rating also takes into account the moderate financial risk profile of the company marked by healthy networth and comfortable gearing. However, the above mentioned strengths are partially offset by the company's intensive working capital operations along with the intensity of competition in industry due to tender driven nature of operations restricting its profit margins.

About the Company

Incorporated in 1988, Capital Power Systems Ltd (CPSL) is promoted by Mr. Pawan Bansal and Mr. Mahesh Kumar. CPSL is engaged in manufacturing of electricity meters, gas meters and water meters. Its manufacturing plant is located at Noida, Uttar Pradesh with an installed capacity of 30 lakh meter per annum. CPSL supplies meters majorly to state power utilities along with certain private sector players. Also, since last few years they have started to supply for turnkey projects wherein installation, operation and maintenance of meteres are also being done.

Analytical Approach

­Acuité has considered the standalone business and financial risk profile of CPSL to arrive at the rating.

Key Rating Drivers

Strengths

­Experienced management and long operational track record. CPSL has a long operational track record of more than three decades in this line of business. The promoters of the company, Mr Pawan Kumar Bansal and Mr Mahesh Kumar Gupta have an experience of more than three decade in this industry and are involved in the day-to-day operations. The experience of the promoters has helped the company to maintain a healthy relationship with its customers and suppliers of 7-15 years. The company has achieved a revenue of Rs.129.75 Cr in FY2022 as against Rs.136.98 Cr in FY2021. Further, CPSL has already achieved a turnover of Rs 147.12 Cr till January 2023 and are expecting to close this fiscal year with revenue of more than Rs 180 Cr . Acuite believes that the company will benefit from the long operational track record, promoter’s extensive experience along with long standing relationship with its customers and suppliers. Moderate Financial Risk Profile The financial risk profile of the company stood moderate marked by strong networth, comfortable gearing and stretched debt protection metrics. Tangible Networth of the company stood at 55.85 Cr. as on FY 22 as against 52.23 Cr as on 31st March,2021. Improvement in networth is due to accretion of profits in reserves. Gearing of the company stood comfortable at 0.90 times as on 31st March 2022 as against 0.84 times as on 31st March, 2021. TOL/TNW stood at 1.31 times as on FY 2022 as against 1.05 times in FY2021. Debt protection metrics are stretched with Interest coverage ratio of 2.16 times in FY 2022 as against 1.8 times in FY2021 and DSCR of 1.67 times in FY 2022 as against 0.90 times in FY2021. Acuite believes that the financial risk profile of the company is expected to remain comfortable on account of absence of any debt funded capex and expected improvement in operating performance of the company.

Weaknesses

­Intensive Working Capital Operations CPSL’s working capital operations are intensive marked by Gross Current Asset days (GCA days) of 306 days in FY 2022 as against 237 in FY2021. The debtor days stood at 208 days in FY 2022 as against 188 days in FY2021. Inventory holding period is held at 79 days in FY 2022 as against 29 days in FY2021. Creditor days of the company deteriorated to 83 days in FY 2022 as against 28 days in FY2021. The raw materials are imported by opening an LC with a credit period of 90 to 180 days whereas for domestic purchases upto 60 days. The average bank limit utilisation in the past 6 months ended January 2023 stood at 65.10%. Acuité expects the working capital management to remain intensive over the medium term on account of the high credit period extended to its customer majorly being state owned power utilities. Tender based nature of operations and competitive industry CPSL manufactures and supplies meters to various state owned power utilities. The revenue of the company is highly dependent on the number and value of tenders floated by such power utilities. Additionally, supply to such state owned power utilities exposes the company to the risk of elongated receivables. The company also faces intense competition from several players in the industry in procuring orders through bidding, immense competition for procuring tenders leads to very competitive pricing which in turn lead to stress on the operating margins. Moreover, susceptibility of raw material pricing again keeps margin vulnerable and is a key sensitivity factor.

Rating Sensitivities

­Significant improvement in scale of operations and profitability margins. Elongation of working capital cycle leading to deterioration in liquidity position

Material covenants

­None

Liquidity Position

Adequate

­CPSL has an adequate liquidity marked by expected sufficient net cash accruals in the range of Rs 4.90 Cr as against maturing debt obligations of Rs 0.82 Cr in FY 22 as against net cash accruals generated by company of Rs 4.19 Cr as against debt obligation of Rs 5.33 Cr in FY21, the same is due to high repayment obligations in FY21 on account of prepayments of loan from NBFC’s taken for working capital requirements. Average bank limit utilization in the past 9 months ended January 2023 stood at 65.10%. CPSL maintains unencumbered cash balances of Rs. 0.01 Cr as on March, 2022 as against Rs.0.07 Cr as on March, 2021.

Outlook: Stable

­Acuité believes that the outlook of the CPSL will remain 'Stable' over the medium term on account of experienced management and comfortable financial risk profile. The outlook may be revised to 'Positive' in case of higher-than-expected growth in revenues while improving profitability margins. Conversely, the outlook may be revised to 'Negative' in case of any further stretch in its working capital requirements leading to deterioration of its financial risk profile and liquidity.

Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 22 (Actual)	FY 21 (Actual)
Operating Income	Rs. Cr.	129.75	136.98
PAT	Rs. Cr.	3.67	2.89
PAT Margin	(%)	2.83	2.11
Total Debt/Tangible Net Worth	Times	0.90	0.84
PBDIT/Interest	Times	2.16	1.80

Status of non-cooperation with previous CRA (if applicable)

IVR vide its press release dated 11.04.2022, had downgraded the company to IVR BB+/A4+; INC.

Any other information

­None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm

Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 29 Apr 2022 Cash Credit Long Term 10.00 ACUITE BBB | Stable (Reaffirmed) Letter of Credit Short Term 11.50 ACUITE A2 (Assigned) Proposed Bank Facility Long Term 0.20 ACUITE BBB | Stable (Assigned) Bank Guarantee Short Term 17.00 ACUITE A2 (Assigned) Bank Guarantee Short Term 13.00 ACUITE A2 (Assigned) Bank Guarantee Short Term 15.00 ACUITE A2 (Assigned) Bank Guarantee Short Term 4.00 ACUITE A2 (Assigned) Cash Credit Long Term 2.00 ACUITE BBB | Stable (Assigned) Proposed Cash Credit Long Term 2.50 ACUITE BBB | Stable (Reaffirmed) Working Capital Term Loan Long Term 3.00 ACUITE BBB | Stable (Assigned) Working Capital Term Loan Long Term 1.45 ACUITE BBB | Stable (Assigned) Working Capital Term Loan Long Term 0.35 ACUITE BBB | Stable (Assigned) Cash Credit Long Term 5.00 ACUITE BBB | Stable (Assigned) Cash Credit Long Term 10.00 ACUITE BBB | Stable (Assigned) 11 Apr 2022 Cash Credit Long Term 10.00 ACUITE BBB | Stable (Assigned) Proposed Cash Credit Long Term 2.50 ACUITE BBB | Stable (Assigned)

­

Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating Axis Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 15.00 Simple ACUITE A2 | Reaffirmed Bandhan Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 13.00 Simple ACUITE A2 | Reaffirmed Yes Bank Ltd Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 17.00 Simple ACUITE A2 | Reaffirmed Yes Bank Ltd Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 6.00 Simple ACUITE A2 | Assigned Bandhan Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 7.00 Simple ACUITE A2 | Assigned Axis Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 9.50 Simple ACUITE A2 | Assigned Indusind Bank Ltd Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 4.00 Simple ACUITE A2 | Reaffirmed Yes Bank Ltd Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 5.00 Simple ACUITE BBB | Stable | Reaffirmed Axis Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 10.73 Simple ACUITE BBB | Stable | Reaffirmed Axis Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 3.27 Simple ACUITE BBB | Stable | Assigned Yes Bank Ltd Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 1.00 Simple ACUITE BBB | Stable | Assigned Bandhan Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 10.00 Simple ACUITE BBB | Stable | Reaffirmed Indusind Bank Ltd Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 2.00 Simple ACUITE BBB | Stable | Reaffirmed Indusind Bank Ltd Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 11.50 Simple ACUITE A2 | Reaffirmed Indusind Bank Ltd Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 9.00 Simple ACUITE A2 | Assigned Not Applicable Not Applicable Proposed Cash Credit Not Applicable Not Applicable Not Applicable 1.97 Simple ACUITE BBB | Stable | Reaffirmed Bandhan Bank Not Applicable Working Capital Term Loan Not available Not available Not available 1.45 Simple ACUITE BBB | Stable | Reaffirmed Indusind Bank Ltd Not Applicable Working Capital Term Loan Not available Not available Not available 0.35 Simple ACUITE BBB | Stable | Reaffirmed Indusind Bank Ltd Not Applicable Working Capital Term Loan Not available Not available Not available 0.09 Simple ACUITE BBB | Stable | Assigned Bandhan Bank Not Applicable Working Capital Term Loan Not available Not available Not available 0.14 Simple ACUITE BBB | Stable | Assigned Axis Bank Not Applicable Working Capital Term Loan Not available Not available Not available 3.00 Simple ACUITE BBB | Stable | Reaffirmed

Contacts

Analytical	Rating Desk
Aditya Gupta Vice President-Rating Operations Tel: 022-49294041 aditya.gupta@acuite.in Satyam . Analyst-Rating Operations Tel: 022-49294065 satyam.saxena@acuite.in	Varsha Bist Senior Manager-Rating Operations Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité.